The South Korean National Assembly passed an amendment today that will officially bring cryptocurrencies under South Korea's legal system.
The amendment, as written, alters the Act on Reporting and Use of Specific Financial Information to account for cryptocurrency business activity. It was drafted based on the Financial Action Task Force (FATF) rules around cryptocurrency that were released last summer.
Under the amended law, cryptocurrency companies in South Korea will have to comply with know-your-customer (KYC) and anti-money laundering (AML) requirements, verifying user identities and reporting transactions. Specifically, exchanges, wallet providers, blockchain projects that have conducted initial token offerings now need to partner with an approved South Korean bank to verify the real names of participants and bank account information.
"This is to impose obligations to effectively prevent money laundering and public threat financing from virtual asset providers, and to prescribe matters to be followed when financial companies conduct financial transactions with virtual asset providers," the updated bill states.
South Korea is one of the biggest cryptocurrency trading hubs in Asia, with over 70 exchanges in the country. Up until now, this market largely operated in the legal grey area, and lawmakers had only issued recommended guidelines rather than specific laws. The amended law is expected to provide clarity and a greater degree of legality that the cryptocurrency market in South Korea lacked.
"[This is] very meaningful as it will give clarity to many aspects of the crypto market in the region where there are many 'gray' areas. The regulation will make cryptocurrency, crypto custody, crypto exchange to be regulated under traditional laws and provide clear rules for exchanges to open bank accounts for the customers. Very positive news for crypto community in South Korea and it will build the foundation for institutional players and investors to more actively engage in the crypto space,” BlockTower Capital investor Steve Lee told The Block.
Lee, who has expertise in the South Korean and Japanese crypto market, predicted that, in the short-term, a few "low-quality" projects and exchanges will be washed out, leaving space for institutional investors.
South Korea is among one of the few Asian countries that have undertaken crypto-friendly policy moves in recent years. Yesterday, the Supreme Court of India struck down a circular issued by the Reserve Bank of India in 2018 that forbade banks from dealing with crypto firms. Japan is looking to implement a 2019 amendment that will bring crypto margin trading, derivatives trading and security tokens under closer supervision.
"This news could add on the news from India where the ban on crypto was lifted and the news in Japan which will execute a few crypto regulations from April, creating a strong positive impact into the entire crypto community," said Lee.
The amendment still awaits the final approval of President Moon Jae-in to be signed into law officially. If given approval, it will become effective next March, and by September 2021, all cryptocurrency businesses will need to be in full compliance.
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